You might be on your last dollar, but it’s not always a reason to sing the blues. In fact, in the strange world of taxation, your last dollar could actually put you in a higher tax bracket. Put on your shades, grab your guitar, and read on.
A tax bracket is a range of incomes taxed at a specific rate. For example, the lowest tax bracket might be $0-$8,025; the second might be $8,026-$32,550; the third $32,551-$78,850. When your income moves above or below the range limits (from $8,025 to $8,026 for example), you switch to a different tax bracket.
Tax brackets are components of a progressive income tax system, in which taxes increase progressively as income increases. The idea is that high-income taxpayers can shoulder the burden of a high tax rate. Low-income taxpayers pay less because they can't afford to pay high taxes.
Tax bracket is a simpler way to say marginal tax rate. A marginal tax rate is the "tax paid on an additional dollar of income" [source: Investopedia]. That additional dollar is also known as your "last dollar." In a progressive tax system, the portion of your income that does not exceed the upper limit of a tax bracket is your "last dollar."
In this article, you'll learn where your last dollars fall. You'll find out how to find your U.S. tax bracket and learn a little about the history of tax brackets in the United States.
Helpful Tax Resources
Little changes can make a huge difference when it comes to your tax return. These articles will help you get the most from your return (and make the whole process as easy as possible).
presented by TaxACT